Audit Notes: Risky Business, Two Economies, Google and Monopoly

The New York Times is good to keep an eye on signs of a return of risky lending.

Today it looks at signs that the moribund credit-card industry is stirring again, which could be worrisome on a number of levels like getting more people into more debt and possible bubble behavior as a result of the Fed’s monetary policies.

But there’s something I want to point out:

The rise is striking because it includes offers to riskier borrowers who were shunned as recently as six months ago. But this time, in contrast to the boom years, when banks “preapproved” seemingly everyone, lenders are choosing their prospects more carefully and setting stricter terms to guard against another wave of losses.

It’s worth noting that booms or bubbles don’t go from zero to sixty in six months. The peak nuttiness of the housing boom would have been thought crazy by participants two, four, or six years earlier when the bubble was just getting going. If the banks see that they can make money lending more to lower-income people, and regulators don’t prevent them, they’ll just keep on loosening standards to plump up that end-of-year bonus.

The rise is striking because it includes offers to riskier borrowers who were shunned as recently as six months ago. But this time, in contrast to the boom years, when banks “preapproved” seemingly everyone, lenders are choosing their prospects more carefully and setting stricter terms to guard against another wave of losses.

Look on the bright side: At least those bazillions of unwanted letters will help cut that U.S. Postal Service deficit.

— The Washington Post has a promising lede on a story about America’s two economies:

A new division is emerging in America between those who have moved on from the recession and those still caught in its grip.

This holiday season, those two worlds have been thrown into stark relief: At Tiffany’s, executives report that sales of their most expensive merchandise have grown by double digits. At Wal-Mart, executives point to shoppers flooding the stores at midnight every two weeks to buy baby formula the minute their unemployment checks hit their accounts. Neiman Marcus brought back $1.5 million fantasy gifts in its annual Christmas Wish Book. Family Dollar is making more room on its shelves for staples like groceries, the one category its customers reliably shop.

The rest of the story is okay, but it’s basically a retail story that points out how luxury shoppers are doing better than discount ones. That’s fine, but to take this to the next level, it would have needed to take a good step back to talk about why there’s this disparity.

But it’s at least a step in the right direction.

— I think this ought to be relevant to Danny Sullivan and Greg Sterling over at Search Engine Land (emphasis mine). It’s from a Justice Department report on “Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act”:

Monopoly power entails both greater and more durable power over price than mere market power and serves as an important screen for section 2 cases. As a practical matter, a market share of greater than fifty percent has been necessary for courts to find the existence of monopoly power. If a firm has maintained a market share in excess of two-thirds for a significant period and the firm’s market share is unlikely to be eroded in the near future, the Department believes that such facts ordinarily should establish a rebuttable presumption that the firm possesses monopoly power. The Department is not likely to forgo defining the relevant market or calculating market shares in section 2 monopolization and attempt cases, but will use direct evidence of anticompetitive effects when warranted and will not rely exclusively on market shares in concluding that a firm possesses monopoly power.

Google’s market share is right at two-thirds (which seems low to me—here at The Audit, Google accounts for 85 percent of our search traffic). And even if you question whether it has monopoly power, it’s certainly a duopoly when considering Yahoo/Bing’s 28 percent share.

And these companies (mainly Google) with these dominant market positions in this critical area to push their own products in front of others’. That seems anticompetitive on its face.

But we get back to the problem that the sole arbiter of what is best for the Google user is Google, which gives it immense market power.

This is reminiscent of the EU case against Microsoft in the 1990s. Whether or not Google is actually doing anything that qualifies as an an infringement of competition law remains to be seen, but it looks at least worth examining.

Indeed.

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